Finance Minister, Ken Ofori-Atta, has said that the impact of the coronavirus pandemic on the local economy will cause the deficit target to widen beyond the Fiscal Responsibility Act’s threshold of 5 percent.
Government has previously maintained that, despite being an election year where spending always crosses the budget deficit target, it will not follow that norm this time but keep spending in check at 4.7 percent of GDP, a target that experts and research institutions have always been skeptical about. To cement that assurance, government went further to establish the Fiscal Responsibility Act which forbids any administration from crossing a fiscal deficit target of 5 percent.
However, the sudden negative impact of the coronavirus pandemic on revenue and expenditure has made any thought of achieving such a target unrealistic and unattainable, as Mr. Ofori-Atta now admits that the target may rise to as high as 7.8 percent – the highest ever recorded under the Akufo-Addo administration.
Translated into money, the minister said the deficit will increase from the programmed GH¢18.9 billion to GH¢30.2 billion, the variance equivalent to 2.9 percent of GDP. The primary balance will also worsen from a surplus of GH¢2.8 billion to a deficit of GH¢5.6 billion, representing 1.4 percent of GDP.
All these have become possible due to the coronavirus pandemic which is estimated by Mr. Ofori-Atta to cost the economy, at least, GH¢9.5 billion, representing 2.5 percent of GDP.
The minister further enumerated some measures government has planned to take to mitigate the situation. These include lowering the cap on the Ghana Stabilisation Fund (GSF) from the current US$300 million to US$100 million in accordance with Section 23 (3) of the Petroleum Revenue Management Act (PRMA).
This measure, he said, will enable the excess amount in the GSF account over the US$100 million cap to be transferred into the Contingency Fund for it to be used to fund the Coronavirus Alleviation Programme (CAP). This process will free up some GH¢1.2 billion to fund the CAP.
Other mitigation measures, the minister said, is to arrange with the Bank of Ghana to defer interest payments on non-marketable instruments estimated at GH¢1.2 billion to 2022 and beyond; and adjust expenditures on Goods and Services, and capital expenditure downwards by GH¢1.2 billion.
Again, government says it will secure a World Bank loan of GH¢1.7 billion; and an International Monetary Fund (IMF) loan of GH¢3.1 billion; and further reduce the proportion of Net Carried and Participating Interest due GNPC from 30 percent to 15 percent.
Another measure which has sparked some controversy between government and the opposition party is the amendment of the Petroleum Revenue Management Act (PRMA) to allow a withdrawal from the Ghana Heritage Fund – which has an estimated US$591 million – to undertake emergency expenditures in periods of national emergency.
The aforementioned measures, though, will not bring the deficit down to within the fiscal rule target, it will, at least, reduce it to 6.6 percent of GDP.